How Indonesia Is Becoming a Centre of Fintech Innovation

The fintech scene in Indonesia has really started to pick up in the past few years to become one of the hubs of real innovation within the South East Asian region. With over 250 million Indonesians that are ‘unbanked’, (66% of the population) there is a lot of potential to create financial inclusion in the country.

With the Republic of Indonesia’s vision of ‘Indonesia Digital Economy 2020’ and ‘National Movement of 1000 Digital Startups,’ fintech is being given the platform and Government support for entrepreneurs to start innovating. The Indonesian Fintech Association is providing further support for those innovators.

Key regulators in the region entail Bank Indonesia and Otoritas Jasa Keuangan. Bank Indonesia largely oversees monetary policies and the OJK acts as the supervisory arm of the Government to regulate the financial services sector, overseeing P2P lending, equity crowdfunding, digital banking, fintech in capital markets and consumer protection.

Recent Trends

With the government push for fintech to flourish, the sphere is seeing mobile payments and alternative lending flourish with investments increasing at impressive rates. Fintech investors and venture capitalists have their sights set on the country, with East Ventures, Kejora and 500 Startups being some of the leading investors in fintech companies with a social impact.

In the Spotlight

Indonesia is home to some of the world’s most promising unicorns. Google and Tencent backed GoJek that has expanded from a startup which used ride-sharing and convenient transport methods to tackle the traffic issue, to a super app which covers airtime top-ups, allows the user to pay bills and even medicine delivery.

Big players, unicorns and ones to watch

• Modalku

Provides help for SMEs start or grow their business by providing them with a platform which connects them to investors via a P2P or crowdfunding model. Having completed their series B round, led by Softbank Ventures and more, the Fintech is expanding.

• CekAja

CekAja is a comparison platform helping to build trust between Indonesians and banks by comparing financial services such as loans, and credit cards.

• Doku

Doku is the largest and fastest growing provider of electronic payment and risk management in Indonesia.

The Public Desire

With around 88% of the population being Muslim, Indonesia has a desire to create fintech visions that are Shariah-compliant. only three of ninety-nine P2P financing companies registered with the Financial Services Authority (OJK) are Shariah-compliant, and only one sharia-compliant financing company, Paytren, is registered with Bank Indonesia. Ma’ruf Amin, the running mate of President Joko “Jokowi” Widodo in the 2019 election argued how ‘we should push for bottom-up economic development, building the economy of the ummah through the use of the sharia system. This will also strengthen the nation’s economy. Encouraging the creation of fintech models which are Shariah-compliant requires the necessity to carefully follow regulation.

Looking to the Future

With a growing middle class, high internet penetration rates and mobile phone usage, and a desire for bank accounts, Indonesia has significant potential to create the perfect environment for fintech innovation.

Modern service providers have much room for growth, especially among the unbanked population that is still currently underserved, and with services that are flourishing to assist the growing middle class, we will most likely see an even faster adoption of those services and further development of them. While there has been an explosion in terms of usage in the major cities, there still is a chapter to be written in the rural areas of Indonesia that are harder to reach, we shall then see what the next few years will bring to those remote areas.

Ellen Humphreys

Having gained experience in the UK Houses of Parliament, International Development and Chinese Think Tanks, Ellen has developed a passion for global affairs. She has undertaken her studies in the UK and has lived and worked in multiple countries including India, Switzerland, Spain and Hong Kong. She currently undertakes her studies at the University of Warwick, studying International Relations and Politics with a focus on Business. Ellen translates her passion for politics to the world of financial technology where she demonstrates a particular interest in developments in Asia.